U.S. Foreign Debt Soars to $532.5 Billion in 1988

WASHINGTON — America's foreign debt burden soared to $532.5 billion in 1988, pushing the United States further into hock as the world's largest debtor country, the government reported today.

The Commerce Department said the new debt total was $154.2 billion higher than the $378.3 billion in debt to foreigners that the United States owed at the end of 1987.

The debt figure means that foreigners own more in U.S. assets than Americans own abroad.

For 1988, the government reported that foreign holdings in the United States increased 15.4% to $1.79 trillion. American investments abroad also rose, but by a smaller 7.2%, climbing to $1.25 trillion.

The huge 41% jump in the debt total in just one year was certain to rekindle the debate over what the run-up in foreign holdings means for America's future.

Many private economists believe that the United States is losing control of its economic destiny and the debt burden will ultimately lower American living standards as more and more wealth is transferred into the hands of foreigners to service the debt, leaving less money for distribution in this country.

However, the Bush Administration, like the Reagan Administration before it, contends that foreign investment has been good for the nation, bringing an infusion of capital needed to rejuvenate many aging American industries.

Foreign director investment, defined as ownership of at least 10% of a company, soared by 21% last year to a record $328.8 billion, reflecting something of a foreign buying-spree for American companies.

The overall net debtor position of $532.5 billion showed how rapidly the foreign debt is piling up. As recently as 1983, the United States was the world's largest creditor nation with an investment surplus of $89 billion.

That surplus fell to $3.3 billion in 1984 and disappeared altogether in 1985, the year the country became a net debtor for the first time in 71 years.

The country's investment surplus evaporated as the United States ran up huge merchandise trade deficits during the 1980s, transferring billions of dollars into the hands of foreigners to pay for imported cars and television sets.

These dollars, now in foreign hands, have been reinvested in the United States in everything from stocks and bonds to factories and real estate, raising alarms in Congress that something must be done to curb the "selling of America."

The transformation of the United States from the largest creditor country to the world's biggest debtor is often seen by critics as one of the biggest failures of former President Ronald Reagan's economic policies.

A report by the congressional Office of Technology Assessment, which reviewed the situation last year, concluded: "As the United States sinks deeper into debt, foreign investors and creditors will be less inclined to commit ever-increasing amounts of capital to a $4-trillion economy on a spending spree."